The market was focusing attention on government’s certainty to increase
price of subsidized oil. God permitting, on June 17th 2013 next the
Government and House would jointly approve price increase of subsidized oil.
This step was believed to inject positive sentiment to the market so Rupiah
exchange rate value and IHSG could be elevated.
The fact was that the increased BI rate of 25 bps last week was not
effective enough to strengthen Rupiah and jack up stockmarket index. So now all
it takes was Government’s political will power to increase oil price so all
that was well might end well.
The Moneymarket
The increase of BI rate by 6% was not powerful enough to uplift Rupiah
exchange rate against USD which at the interbank forex spot market on Thursday
last [13/6] was closed to slump by 25 points [0.253%] to the position of
Rp9,880/Rp9,885 against the previous position of Rp9,885/Rp9,860. This
weakening was on account of risk aversion and sizable capital outflow from the
emerging market.
Apparently BI’s shocking move to increase Bank Indonesia Deposit
Facilities [FASBI] and BI rate was still not strong enough to halt Rupiah downturn.
Moreover, each of them inly increased by 25 basic points to 4.25% [Fasbi] and
6% [BI rate]. An least an increase of 100 basic points was needed, especially
Fasbi to stop Rupiah downturn as Fasbi was rated as more effective.
Risk aversion to save haven assets was in line with expectation of
stimulus termination by the Fed. This triggered expectation of the easy money
policy of global central banks to lessen which triggered deleveraging of
various assets of various monetary sectors. At the same time there was
restlessness in US bond yields for tenure of 10 years which still showed
increase as the auction of the previous week again signaled significant
downturn with bid-to-cover ration of 2.5 which was the lowest figure since
August against 2.7 of the previous auction.
Meanwhile yields of US bonds reached its highest level since October
2011 at the position of 2.21%. the impact on the stockmarket was extremely
negative which triggered risk aversion, so USD was the market’s target as safe
haven currency.
What remained was that the market was waiting for data of US retail and
unemployment claim. The result was that USD strengthened against currency for
the emerging markets including Rupiah. But USD weakened against most of the
world’s leading currencies including Euro. Index of USD inched down by 0.23% to
the position of 80.68 against the previous 80.93 Against Euro USD weakened to
USD 1,3341 per Euro against the previous USD 1,3336 per Euro.
For information, BI had decided to increase BI benchmark rate by 25 basic
points to 6% considering future inflation expectation [13/6]. The Deposit
Facility Interest and Leading Facility Interest remained to be set at 4.25% and
6,75% respectively. The policy was part of BI’s policy mix as pre-emptive act
to inflation expectation as well as to maintain macro-economic stability and
financial stability amidst uncertain condition of the global market.
Meanwhile BI continued effort to stabilize Rupiah in accordance with
national fundamental economy while securing forex liquidity at the domestic
forex market. BI planned to enhance monetary operations through strengthening
of monetary instruments and indepth consolidation of Rupiah and forex. In
addition to that consolidations of macro-prudential policies were also prepared
to prevent higher risk in certain sectors. Coordination with the Government was
fostered with efforts to minimize potential inflation pressure and maintain
macro economic stability and financial system.
BI’s policy to increased BI rate was rated as the right move to minimize
Rupiah weakening and possible inflation in line with Government’s plan to
increase price of subsidized fuel. Tis was BI’s daring act to try to command
the market as Rupiah weakened and inflation triggered by new fuel price.
Many circles were hoping that Rupiah weakening was temporary as it was
caused by global sentiment and seasonal high demand for USD, as indicated by
forex reserves which dropped to USD 105.1 billions in May against USD 107.2
billion in April or equal to 5.8 months of import and overseas debt payment.
Analysts and economists recommended BI to solidity their policy in the event
that oil price increase was starting to generate broader impact. BI rate could
be further increased by 50-75 basic points [BPS] as inflation reached 8.5% by
end of year. However, if core inflation was till under control, BI needed only
to increase bank interest by 50 bps. Inflation could be lowered if the
Government was able to control supply in the market.
Eventually strong Rupiah would improve domestic perception and ease
external negative sentiment which would elevate Rupiah hopefully to the level
of Rp9,600 per USD by year end. Apparently President SBY had made a daring move
to increase fuel price toward 2014 election he was sincerely willing to the do
it as he did not wish to burden the next President. President SBY expected the
Parliament to approve the RAPBN-P State Budget 2013 which was proposed by the
government. SBY expected that by June 17 dissected of 2013 State Budget would
be accomplished.
The Government was also trying to comport the market who were uneasy
about the Government’s indecision in increasing fuel price, which had weakened
Rupiah. Finance Minister Chatib Basri stated that the market needed not be
anxious about oil price increased since the Government’s stance was clear: to
increased rice of subsidized oil. According to the Minister, anxiety had
suppressed Rupiah value.
Finance Minister Chatib was optimistic that Rupiah would regain strength
after increase of fuel price and improved trade balance. As known, weakening of
Rupiah to as low as Rp10,000 per USD was not overlooked by President SBY; at
lease there were two aspects which contributed to Rupiah weakening.
Firstly, monetary pressure at regional and global level which more or
less had its impact on Rupiah exchanges rate value.
Secondly, the Government’s decision to increase fuel price. Also
noteworthy was pressures on IHSG which contributed to Rupiah weakening.
However, to increase fuel price which was already stipulated by the Government
would at least bring certainty to investors about Government’s policy to reduce
fiscal deficit and trade balance.
Pressures on Asian currency including Rupiah would not ease so soon
following confirmation of the Standard & Poor’s rating agency which upraged
America’s credit level from negative to stable, based on the least fiscal risk
condition.
There was some sort of positive sentiments which helped Rupiah
strengthening following Government’s plan to issue State’s Retail Bond [ORI] seri
010 this year which was estimated to drum up public’s attention. However, the
public’s zest would be influencer by BI rate which resulted in ORI 010 coupons.
Analysts estimated that the ORI 010 coupon would be around 6.25% to 7,25% after
increase or BI rate by 25 bps to attract investors.
There was a tendency of growing public interest in ORI bonds each time
the Government issued a new series The reason was that in terms of return ORI
was more profitable than fixed deposit; besides, in the secondary market ORI
transaction was more magnetic while the liquidity was high.
However, the Government must try to keep public demand high by releasing
coupons with rates adjusted to BI rate. Market risk was predicted to be high in
time to come while inflation would soar high due to increase fuel price. In the
end BI was expected to stabilize Rupiah at around Rp9,800 per USD ; or else it
could be extremely dangerous to APBN State Budget and to BI balance sheet
itself while forex reserves would constantly be eroded.
BI also had absorbed State Promissory Notes [SUN] worth Rp1 trillion in
the auction last week in the effort to maintain stability to the monetary
system. Auction yields was below target of Rp2 trillion was obtained because
SUN owners tend to hold or wished to hold their SUN bonds. BI was buying SUN
within the framework of stabilization of the monetary system which was closely
related to Rupiah exchange rate value which tend to weaken lately.
It was noteworthy that there was growing fear of capital flight back to
the developed nations by investors; recovery of US economy might mean the end
of Quantitative Easing [QE] by the US Central Bank. Global investors believed
that financial crisis in Europe and the USA had subsidized. Under the
circumstances the market feared there would be backflow of capital from the
emerging markets to the established market.
Of the various assumptions as described above, Rupiah in the closing
session of last week [14/6] would move in the range of Rp9,880 – Rp9,900 per
USD with tendency to stagnate. This week Rupiah was predicted to move in the
range of Rp9,900 per USD with tendency to strengthen.
The Capital Market
In tandem with Rupiah which tend to weaken, IHSG fell by 90 points under
pressure of foreign investors’ selling spree. Not a single sectoral index
managed to escape from the red zone. To start opening session on Thursday
morning [13,6], IHSG sank by 99.843 points to the level of 4,598.041 being dragged by negative sentiment from the
regional and global market. Foreign investors were again on net sell.
The moment sessions started, index instantly nose dived to the red zone
touching the bottom line at 4,568.117. Pressure to sell was still high in the
last sessions. During last closing transaction in session I, IHSG fell by
79.898 points [1.07%] to the level of 4,568.117. Pressures to sell was still
high in the last few session. During closing transaction in session I, IHSG
fell by 79.898 points [1.70%] to the level of 4,617.896. Indices were still
trapped in the red zone on account of pressures to sell. Not a single sector
escaped foreign investors’ craze, all sectoral indices were corrected, the
correction being more than more than two percent on the average.
To end sessions last Thursday [13/6] IHSG was closed to fall by 90.221
points [1.92%] to the level of 4,607,663. Meanwhile index of LQ45 was closed to
dive by 18.032 points [2.32%] to the level of 759.495. IHSG downfall happened
as Bank Indonesia increased BI benchmark rate to anticipate slump of Rupiah
against USD.
Consumer-goods based premium shares had become the target of sellers,
the same was with second tier shares of the various industry sector. Some
domestic investors were doing acts of buying. Again foreigners prevailed in the
act of selling. Foreign investors by this afternoon were seen as doing foreign
net sell worth Rp1.358 trillion at the regular market and by negotiations.
All of the shares in Asia were not even close to the green zone until
closing session today. Japan’s stockmarket jumped on a free fall more than 6%
after Yen’s value strengthened highly against USD. Index of Composite Shanghai
dropped by 62.54 points [2.38%] to the level of 2,148.35. Index of Hang Seng
dropped by 467.62 points [2.19%] to the level of 20,887.04 index of Nikkei
nosed drived by 843.94 points [6.35%] to the level of 12,445.38.
The premium stockmarkets in Europe joined the free fall after seeing the
stockmarket in Japan falling by more than 6%. Negative sentiment came from the
USA as fear mounted that the Federal Reserve would cancel the stimulus program.
Index of the leading stockmarket in London, FTSE 100 dropped by 1.22% to the
level of 6,222.41 while DAX 30 in Frankfurt fell by 1.47% to the level of
8,023.37 Index of CAC in Paris shrunk by 1.24% to the level of 3,476.62.
The leading index in Tokyo: Nikkei, fell by 6.35% to the level of
12,445.38 this weakening was on account of Yen’s value against USD which made
exporter’s to collapse. This weakening at the Japanese stockmarket eliminated
one fifth of the points obtaines since last May.
Fear that the stimulus would be withdrawn by the US Central Bank was the
main trigger. The point was that the stimulus program known as quantitative
easing had contributed to the recovery process and had driven the US economy to
grow positively. Many market players feared that the financial industry was
still unable to stand on their own without stimulus aid. Yet Japan already had
their own economic growth program known as Abenomics by initiative of Japanese
Prime Minister Shinzo Abe.
Although in fact the Fed and Bank of Japan would as yet still not
withdraw their stimulus program in the near future, investors seemed to have
decided that the right strategy was just to step out of the financial market
for a while. Even since this cancelation of stimulus was mentioned by the Fed,
return of US bonds already rose and many of them walked out of the developing
countries where the currency value kept on weakening against USD.
At the New York stockmarket, index of Dow Jones industrial Average
slumped by 126.79 points [0.84%] to be closed at 14,995.23 S&P 500 based
index dropped by 13.61 points [0.84%] to become 1,612.52 while index of
composite technology Nasdaq lost 36.52 points [1.06%] to become 3,400.43 Share
of the financial sector was under pressure. American Express shares suffered
downturn of 2.4% while bank of America dropped by 0.5%; JP Morgan weakened by
0.6% and Citigroup fell by 1.0%.
Today foreign investors tend to withdraw their capital after index of
Dow Jones entered the slowdown zone. However, the condition was reasonably good
for a healthy market as the value increased and correction was necessary. Today
Indonesia’s stockmarket was fundamentally good and prospective. By projective,
outflow of foreign capital from Indonesia’s stock market was only temporary and
the investors would soon return.
The local stockmarket authorities were not afraid of capital outflow
from Indonesia in the past few days. Reasonable because the Indonesia
stockmarket was a magnetic place for foreign investors in line with growing
emintent’s profit which was notably positive and high return-on-equity [ROE] in
BEI security exchange.
It was projected during closed session last week [14/6] IHSG would move
in the range of 4,600 – 4,620 with tendency to stagnate. Over the week IHSG was
predicted to strengthen in the range of 4,625, being supported by positive
sentiment of increase price of subsidized fuel which created new optimism
stockmarket. (SS)
Business News - July 19,2013
